The quote previous attributed to Albert Einstein is inaccurate even though it is the one you will find in an Internet search. The actual quote, from his essay entitled Physics and Reality (1936), is “the eternal mystery of the world is its comprehensibility.” It is clear from the context and quotation marks that he was referring to someone else as the author.

I could have easily edited that initial quote away and no one would have been the wiser, but it is instructive of what I am attempting to accomplish here. It points out that what we, including me, think we know may not be so. And that a bit more digging – something we are often disinclined to do – can reveal entirely new knowledge. In this case, that the meaning we make of something is often not at all what the author intended.

For example, Stephen Hawking and Leonard Mlodinow (2010) concluded from that quote that, “The universe is comprehensible because it is governed by scientific laws; that is to say, its behavior can be modeled.”

Whereas Einstein on the very same page of his essay states,

“In my opinion, nothing can be said concerning the manner in which the concepts are to be made and connected, and how we are to coordinate them to experiences. In guiding us in the creation of such an order of sense experiences, success in the result is alone the determining factor. All that is necessary is the statement of a set of rules, since without such rules the acquisition of knowledge in the desired sense would be impossible. One may compare there rules with the rules of a game in which, while the rules themselves are arbitrary, it is their rigidity alone which makes the game possible. However, the fixation will never be final. It will have validity only for a special field of application.”

Note: Einstein wrote that “nothing can be said” as to how our sense experiences and concepts are made or related to each other. Instead, he uses the metaphor of a game with rules wherein the “scientific laws” of physics are the rules – which are never final and “will have validity only for a special field of application.”

As this blog is entitled Higher Level Trading, here is an explanation of the analogy. It is our all too human tendency is to take something cleverly phrased as true instead of examining it further. Once something is taken as true, even the best and brightest among us (see above) are more inclined to justify it rather than question it.

A higher-level trading strategy is to resist the urge to explain what you cannot, and instead figure out what has to be there for the system to produce what it does. In both physics and markets, this can be summarized as a statement of a set of rules. Rules are related to games (among other ‘things’). That Trading is a Game is a well-worn metaphor among traders. Games have fixed rules – though they turn out to be somewhat flexible and not always enforced. Game rules can and do change. More important for our purposes, a set of rules is valid only at a specific level of play. Some examples in trading, from shorter time interval to longer, include: high frequency, scalping, swing, position, seasonal, and macroeconomic. Analogous to physics, above or below a given scale/level of play, and a different set of rules apply. Traders unaware of this won’t know their own level of play – how could they – much less what game level they are playing on. The same is the case for most investors.

This blog will explore what these levels are, how they work, and how to work them.